NEW YORK: Top BlackRock Inc bond investor Rick Rieder halved exposure in recent months to a once-major bet in his portfolios on emerging markets on concerns including that the dollar could move higher, he told Reuters on Friday.
"I still would argue volatility is going to be higher, the dollar could potentially continue to grind higher," said Rieder, BlackRock's chief investment officer of global fixed income.
"It's just prudent to run a smaller exposure."
Rieder cut emerging markets to just 7 percent of the US$35.7 billion Strategic Income Opportunities Fund he manages at the end of June, from 17 percent in February, according to periodic disclosures on the company's website.
He said the shift down in emerging markets exposure comes as liquidity drains out of the bond markets and with the U.S. Federal Reserve and poised, he said, to stop reducing its bond holdings and to signal a move toward the end of that balance-sheet reduction policy as soon as September.
The dollar has gained 3 percent this year against its major trading partners, driven by strong U.S. economic data, rising interest rates and the possibility that a trade war could cause inflationary pressures and reduce the trade deficit of the world's largest economy.
The trade rift, strong dollar and other factors have conspired to make life more difficult for emerging markets from China to Turkey and Brazil.
U.S. bond yields are likely to "grind" a bit higher from where they are now, Rieder said, if for no other reason than because inflation is moving higher.
BlackRock is the world's largest asset manager, overseeing US$6.3 trillion in stocks, bonds and other investments.
Low-fee shares of Rieder's Strategic Income Opportunities Fund are up 1.6 percent over one year, a bit ahead of its average peer, according to Thomson Reuters' Lipper unit.
(Reporting by Trevor Hunnicutt; Editing by Marguerita Choy)